Power REIT — Q3 2020 Form 10-Q
Business context and period. This unaudited filing covers the quarter and nine months ended September 30, 2020. Power REIT owns railroad, solar-land and controlled-environment agriculture (CEA) real estate, with a stated focus on expanding its greenhouse portfolio. Its leases are generally long-term and triple-net, placing property expenses on tenants.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $1.116 million | $0.564 million | $2.878 million | $1.554 million |
| Net income | $0.576 million | $0.274 million | $1.308 million | $0.684 million |
| Net income attributable to common shares | $0.506 million | $0.204 million | $1.098 million | $0.474 million |
| Basic EPS | $0.26 | $0.11 | $0.57 | $0.25 |
| Core FFO per common share | $0.35 | $0.18 | $0.83 | $0.45 |
- Revenue growth was driven mainly by rental income from acquired properties: up $548,093 in Q3 and $1.262 million for the nine-month period versus the respective 2019 periods.
- Nine-month expenses rose $700,513, including increases of $531,053 in interest expense, $87,176 in general and administrative costs, and $78,318 in depreciation. Interest expense growth was attributed primarily to financing completed in November 2019.
- Operating cash flow was $1.982 million for the first nine months, versus $1.186 million in 2019. Investing cash outflow was $9.432 million, primarily for property acquisitions and greenhouse construction; financing cash outflow was $0.753 million, including debt principal payments and preferred dividends.
- Cash and equivalents were $7.639 million at September 30, down $8.203 million from year-end 2019. Total assets were $39.305 million and total equity was $10.858 million.
- Debt principal outstanding was approximately $24.465 million; the balance-sheet carrying amount, net of unamortized discount, was approximately $23.844 million. The filing identifies $631,082 of principal due over the next 12 months. Debt includes fixed-rate borrowings, with stated rates of 4.34% to 5.0% on older facilities and 4.62% on the 2019 financing.
- Series A preferred dividends were $70,058 for Q3 and $210,174 for the first nine months. The stated cash dividend was $0.484375 per preferred share per quarter.
Material changes and developments
- During 2020, Power REIT acquired and expanded multiple CEA properties in Colorado and Maine. At September 30, it reported approximately 34 acres and 164,000 square feet of existing or under-construction greenhouses leased to six medical-cannabis operators.
- For the nine months, total real estate assets increased to $27.034 million from $17.698 million at December 31, 2019, while cash declined as acquisition and construction spending accelerated.
- After quarter-end, the company acquired two Colorado properties on October 15, 2020, with a $3.06 million greenhouse construction commitment. Management’s portfolio table as of October 28 includes these post-quarter properties; figures in that table assume completion of approved construction.
Outlook, risks and unusual items
- Management estimated $5.643 million of cash rent over the 12 months following September 30 and said available cash in early November was expected to fund operations and commitments. It also cautioned that further acquisitions may require additional financing, which may not be available on favorable terms. No formal earnings guidance was provided.
- Management reported no direct COVID-19 impact to date but said tenant rent-paying capacity and broader effects remain uncertain.
- Medical-cannabis leases require tenants to maintain licenses and comply with applicable regulations. Certain leases provide for lower rent if cannabis is legalized federally after specified lease periods.
- The filing discusses ongoing litigation, including litigation with Norfolk Southern, and says its outcome cannot be predicted; litigation has incurred defense costs and diverted management resources. No clear quantified exposure is provided.
- Several new leases include deferred-rent periods and substantial construction funding obligations. The filing reports tenant-affiliate financial guarantees on certain leases; their scope and collectability are not quantified here.
- Core FFO is a company-defined non-GAAP measure and may not be comparable with similarly named measures used by other REITs.
Important facts for investors to verify
- Construction spending, project completion, rent commencement and tenant performance across the new CEA properties, including post-quarter acquisitions.
- Cash availability and financing needs relative to remaining capital commitments, debt service and the preferred dividend.
- Tenant financial condition, license and regulatory status, lease guarantees, deferred-rent terms and any rent adjustments tied to federal cannabis legalization.
- Status and potential financial consequences of the Norfolk Southern litigation, and any changes in COVID-19 effects on tenants or rent collections.
- Reconciliation of reported Core FFO to GAAP results and the assumptions used in management’s cash-rent outlook.